Frank Russell Company Grows its Manager Transition Services Business – 600 Percent

“Reducing transaction costs for multi-billion dollar investment plans has reportedly become a surging growth business for Tacoma-based Frank Russell Company, with 600 percent growth in two years.The company, traditionally known for its advisory services, multiple-manager investment funds and stock indexes, has branched out to create a manager transition business designed to generate large savings for institutional clients whenever they hire or fire investment managers.Russell’s transition management business has reportedly risen from $7 billion in assets transitioned in 1997 to over $40 billion year-to-date in 1999. The company’s global transition group has ballooned from two to 16 people and now occupies a newly expanded and remodeled trading services floor in the company’s 12-story Tacoma headquarters.“Total assets transitioned would be even greater this year, but we’ve had to turn some business away due to capacity constraints,” said Bob Werner, director of portfolio transitions at Russell.Russell is gearing up for continued growth in that sector in part by developing a centralized transition management information system, Werner said. The system features automated trade processing and list generation built specifically for the increasing volume of manager transition business.Werner said the organizational and system changes will equip Russell with a service structure unique in the industry. New teams are currently being assigned to specific components of the service, he said, including investment project management, quantitative research, trade implementation and derivatives.“This new structure gives us capacity for rapid growth and consistency in our service,” Werner said. “Our goal is not to turn a client away, especially when we know we can help them.”One case in point he cited involves a $6 billion transition assignment for Utah Retirement Systems, a $12 billion state retirement plan. The assignment involved more than 65,000 trades, all within a tight time frame of five trading days. The company’s handling reportedly saved the plan’s trustees over $10 million over other alternatives.“We don’t have the personnel to handle such a large number of trades,” said Jackie Smith, equity analyst for Utah Retirement Systems. “Russell handled it better than we could have expected. The whole transition went smoothly and was completed on target.”Another client, Fort James Corporation, an international consumer products company with popular North American brands such as Quilted Northern, Soft N’ Gentle, Brawny and Dixie, has returned to Russell for transition management services three times within the past 18 months, according to the company. Combined, these three transitions reportedly totaled $2.7 billion.“There was no physical way for us to do them,” said Fort James’ Jerry Allen, director of global benefit investments. “We’ve relied on Russell, and they’ve come through for us in each case, even when we’ve thrown a few curve balls and given them a short time frame.”The first event for Fort James involved termination of one manager and the hiring of a pooled fund for a $115 million account. The second involved a defined contribution plan with over $1 billion to transition, including 11 managers being reduced, terminated, hired or increased. The third involved a defined benefit plan with 10 manager changes and $1.46 billion to transition.“Each one had its own set of complexities,” Allen said. “But, Russell provided us turn-key service, facilitated each extremely well, and saved us millions of dollars in the process.”When comparing other trading alternatives, Russell estimates it saved Fort James approximately $4.2 million on the $2.7 billion in transitions. Additionally, total costs came in about $900,000 below Russell’s own original estimates.“I’m not looking at the market every day, so I don’t have the skill set of expertise they do,” Allen said. “I consider Russell to be one of my secret weapons; they make me look like a genius.”Werner said that since Russell handles such transitions for its own manager-of-manager funds as well as for its clients who control over $1 trillion in assets, the transition management team continuously must hone its skills for these efforts.“We’re always looking at ways to improve our decision-making to reduce the many risks and trade errors,” Werner said. “It’s a service trustees at other investment funds are finding out adds value to them as well.”Werner said a transition manager typically utilizes a variety of trading methods to liquidate of restructure portfolios in a timely and cost-effective manner. Whether a transition results from a manager change, asset allocation shift, merger, acquisition, or other sizable cash flow, the transition manager aims to reduce overall costs such as market-impact and loss of value from time out of the market.”